Voltas-Atomberg JV to Strengthen RAC Compressor Manufacturing, Eyes Margin Improvement

Voltas is strategically enhancing its manufacturing capabilities and supply chain resilience through a new joint venture with Atomberg Innovation for high-efficiency room air conditioner compressors, even as it navigates low margins despite robust volume growth.

Despite intense competition, Voltas grew room air conditioner (RAC) volume 45 per cent year-on-year (Y-o-Y) and improved market share.

But margins were low at 5.3 per cent (up 168 basis points, or bps, Y-o-Y). Voltas has also signed a joint venture (JV) with Atomberg Innovation to make RAC compressors.

Consolidated revenue was up 19 per cent Y-o-Y at Rs 4,670 crore, while operating profit was Rs 270 crore, up 49 per cent, and adjusted net profit was up 52 per cent Y-o-Y at Rs 210 crore.

There was 32 per cent Y-o-Y growth in UCP (unitary cooling products) and 17 per cent Y-o-Y growth in PES (planned environmental services).

However, its EMPS (electro-mechanical projects & services) revenue declined 27 per cent Y-o-Y.

The operating profit margin (OPM) was up 120 bps Y-o-Y at 5.7 per cent.

Net profit grew 52 per cent Y-o-Y to Rs 210 crore.

Analysts are downgrading earnings estimates due to low margins.

Strategic Joint Venture and Market Performance

RAC volumes grew 45 per cent Y-o-Y with value growing 50 per cent Y-o-Y, pushing market share to 17.3 per cent year-to-date (YTD) for financial year 2026-27 (FY27) by June 2026.

The proposed 50:50 JV with Atomberg Innovation for manufacture of high-efficiency RAC compressors would strengthen localisation and supply-chain resilience.

Voltbek — a 50:50 JV established in 2017 between Voltas and Beko (a subsidiary of Türkiye’s Arçelik) — saw YTD market share of 9.4 per cent in washing machines and 7.4 per cent in refrigerators, although its earnings before interest, taxes, depreciation, and amortisation (Ebitda) breakeven may be delayed due to high commodity costs.

Depreciation rose 15 per cent Y-o-Y, while interest costs declined 6 per cent Y-o-Y and other income increased 11 per cent Y-o-Y.

Segmental Growth and Margin Dynamics

Segmentally, UCP revenue grew 32 per cent Y-o-Y to Rs 3,790 crore, Ebit rose 32 per cent Y-o-Y with UCP margin up 170 bps to 5.3 per cent.

The Ebit margin rose 170 bps Y-o-Y to 5.3 per cent. In EMPS, revenue declined 27 per cent Y-o-Y to Rs 670 crore, Ebit decreased 23 per cent Y-o-Y to Rs 37.8 crore, and Ebit margin expanded 30 bps Y-o-Y to 5.6 per cent.

In PES, revenue rose 17 per cent Y-o-Y to Rs 160 crore, Ebit increased 3 per cent Y-o-Y to Rs 41.2 crore, and Ebit margin contracted 370 bps Y-o-Y to 25.9 per cent.

Window ACs account for 7-8 per cent of annual RAC sales, rising above 10 per cent during peak season.

The segment is OEM-manufactured. Split ACs account for the remaining 90 per cent of RAC sales, with sourcing at 70-75 per cent in-house manufacturing and 25-30 per cent via OEMs (original equipment manufacturers).

Future Outlook and Cost Management

The proposed JV with Atomberg will initially target manufacturing capacity of 2.8 million RAC compressors, securing a critical component of the supply chain.

The proposed compressor platform will cater to 3-star and 5-star RACs, focusing on the 1.5-ton segment.

Voltas expects 18 months from commencement of work to full-scale commercial production.

Current regulations allow imports of up to 30 per cent of FY25 compressor volumes.

Total capital expenditure (capex) requirements will be determined as project details are finalised.

The company estimates primary RAC volumes grew 20-22 per cent Y-o-Y and value rose 25-26 per cent Y-o-Y.

The secondary RAC market share hit 17.3 per cent (15.9 per cent in FY26), with a lead of 400 bps over the nearest competitor.

The commercial refrigeration category is estimated to have grown 15 per cent, including significant price increases, with freezers up 10 per cent, water coolers 15 per cent, and water dispensers 10 per cent.

RAC costs increased by 10-12 per cent, driven by Bureau of Energy Efficiency (BEE) rating changes, commodity inflation, rupee depreciation, and higher freight and plastic costs.

Voltas passed on almost the entire cost increase to the market, with price increase at only 100-200 bps less than inflation.

Ongoing cost-optimisation has also started yielding savings.

Industry import in RACs has reduced from 70-75 per cent to 30–35 per cent currently.

Domestic capacity has expanded across copper, aluminium, controllers, motors and compressors, with 40 per cent of compressors now made in India.

More price hikes may depend on West Asia-related tensions affecting supply chains.

Channel partners are accepting higher prices as necessary cost pass-through.

Voltas expects commercial refrigeration demand to normalise as inventory and pricing adjust to higher costs.

A meaningful increase in outsourcing is not expected, given expanded manufacturing capacity of 1.4 million units at Pantnagar and 1.2 million units at Chennai.

Channel inventory is estimated at four weeks.

It is early to assess festive-season demand outlook, with a clearer view likely over the next four-six weeks.

Voltas’ performance was below estimates in terms of margins.

Going ahead, margin expansion, revenue pickup in EMPS, and Voltbek breakeven are key monitorables.

The Atomberg JV is a positive step, although the benefits will not be seen until the second half of FY28.

The low base could mean mid-teens revenue growth, while operating and net profit could grow at better than 45 per cent.

Voltas is trading at a price to earnings (P/E) of 61 times on estimated FY27 earnings.